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AIRASIA X Second Quarter 2015 Results Briefing
19th August 2015
DISCLAIMER
Information contained in our presentation is intended solely for your reference. Such information is subject to change without notice, its accuracy is not guaranteed and it may not contain all material information concerning the Company. Neither we nor our advisors make any representation regarding, and assumes no responsibility or liability for, the accuracy or completeness of, any errors or omissions in, any information contained herein. In addition, the information may contain projections and forward-looking statements that reflect the company’s current views with respect to future events and financial performance. These views are based on current assumptions which are subject to various risk factors and which may change over time. No assurance can be given that future events will occur, that projections will be achieved, or that the company’s assumptions are correct. Actual results may differ materially from those projected. This presentation is strictly not to be distributed without the explicit consent of the Company’s management under any circumstances.
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2Q15 KEY TAKEAWAYS &
TURNAROUND INITIATIVES
2Q15 KEY TAKEAWAYS
SUMMARY As expected and mentioned during 1Q15 results briefing, First Half of 2015 remains
challenging due to: (i) Marketing halt in 1Q15 with respect to QZ incident, (ii) Brand damage in Australia caused by Bali-Melbourne disruption, (iii) Continuous price pressure from MAS. This was further amplified by unforeseen external factors such as (i) MERS in Korea, (ii) Earthquake in Kathmandu, and (iii) Worsening USD:MYR exchange rates.
As a result of the factors above, 2Q15’s Revenue dropped -3%YoY with Operating Loss narrowed to -RM100mil versus -RM116mil in 2Q14, helped by lower fuel expenses (-44%YoY), depreciation (-22%YoY), and controllable expenses (-56%YoY) following internal restructuring and strategic consolidation with AirAsia Group.
Second Half 2015, especially 4Q15, is on track to override the setbacks of First Half 2015 as business returned with (i) improving advanced bookings and pricing following the return of marketing campaigns in April 2015, and (ii) full implementation of turnaround initiatives.
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2Q15 KEY TAKEAWAYS
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1. YIELDS HAS RECOVERED & STRONG UPSIDE AHEAD RASK improved +7%YoY, contributed by (i) Australia (+17%YoY) on the back of -36%YoY
capacity cut, and (ii) Other region (+21%YoY) which operated under scheduled-charters, while North Asia down -16%YoY mainly affected by Korea traffic.
On the back of network consolidation, Average Base Fare was +7%YoY higher while Load
Factor was mainly pulled back by absence of marketing, and unforeseen outbreak of MERS in Korea which further pressured the already low season in North Asia.
Strong yields upside for 2H2015 as (i) excessive capacity has been consolidated industry-wide and it allow us to compete in a much rationalized environment, (ii) Improved base fare averaging at least +15%YoY based on forward sales, and (iii) drive ancillary (WiFi onboard, empty seat option, enhance duty free products & platform, Fly-Thru and more).
2Q15 KEY TAKEAWAYS
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2. HUGE UPSIDE: INDUSTRY RATIONALIZATION MAS’ capacity cut to Australia routes and more, is a huge positive to AAX as this would propel
the yields recovery as supply tightens, thereby enabling a more rational pricing environment.
3. TAAX REMAINS POSITIVE DESPITE TEMPORARY HICCUPS
TAAX recorded THB100mil Net Loss in 2Q15 mainly affected by (i) MERS outbreak in Korea,
and (ii) ICAO implications. Despite the temporary hiccups, overall forward sales remain positive for 2H2015 and TAAX continued its expansion plan to potential destinations: China, Iran, Russia, Australia.
The recent bombing incident in Thailand is inevitable to affect the tourism industry however we foresee it to be a short term impact as Thailand is no stranger to turmoil and has historically remained unaffected by years of domestic unrest and violence.
2Q15 KEY TAKEAWAYS
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4. CURRENCY IMPACT Manage currency impact resulted from weakening MYR through natural hedging, i.e.
intensify sales from stronger currency market such as AUD and other currencies to offset commitments in USD.
5. IMPROVING CASHFLOW Cash flow position to improve as we cancelled all remaining 2016 to 2019 A330ceo to build
cash.
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1H2015 ISSUES & INITIATIVES
Issues
Marketing Halt in 1Q15 with respect to QZ
Brand Damage in Australia from Bali-Melb
disruption
Continuous Price Pressure from MAS
MERS in Korea
Earthquake in Kathmandu
Sharp decline in MYR
Initiatives Taken
• Re-activated marketing campaigns in early April 2015 to stir traffic
• Launched “Project Ben” & “Vivid Sydney” to restore brand image in Australia
• Capacity management from AAX to recover base fare
• MAS began capacity cut in Australia = rationalize pricing
• Cancelled 40 flights in June & July 2015
• Cancelled 28 flights in 2Q15
• Push AUD sales and other strong currencies to offset USD bills
2H2015
• Business seen return in July onwards following MAS restructuring and brand restored in Australia
• Positive forward bookings following return of marketing activities in April onwards
• Fares improved at least +15%YoY in average
• Turnaround initiatives to begin bearing fruit by 4Q15
2Q – 4Q 2015
TURNAROUND INITIATIVES - IMPLEMENTATION TIMELINE
1Q 2015
Frequency cut (Sydney, Melbourne, Perth, Gold Coast, Hangzhou)
3 OTAs and 1 GDS Went LIVE Charters & Wet Leases Contracts for
2015 Terminated Nagoya & Adelaide 8-Man Crew Merged Operations (Ground
Services & Ramp) with AAB Group Merged Commercial with AAB
Group (Joint Marketing Campaign) Enhanced Automation Turnaround Flights for Shanghai,
Xi’an, Chongqing, Colombo, Kathmandu
Renegotiation of Ground Handling Contract in Japan & Australia
Launched AirAsia EZPay
Executed Rights Issue (Completion: Mid-June 2015) Fuel Savings Initiative – Fuel Tankering Opening of “Unique” Routes – Launched Sapporo; Hawaii (target
to launch in 3Q2015) Launched partnership with Flight Centre Travel Group (FLT) in
Australia Joint Marketing with Tourism [on-going] Push BIG Loyalty [on-going] Enhanced Payment Channels (Activated IATA’s Billing Settlement
Plan & UnionPay) WIP WIFI Onboard WIP Renegotiation of D-Factor & Airport Charges WIP Enhanced Duty-Free Products and Platform WIP Lower Insurance Premium (with IOSA certification) WIP Turnaround Flights for Perth and more WIP Paperless Cockpit WIP Review New Strategy for Existing and Terminated Routes
FULL IMPLEMENTATION – 4Q2015 9
‐ Termination of MAS’s Brisbane effective 9 Aug 2015, will divert traffic to AAX’s Gold Coast as AAX is the only airline flying direct from Kuala Lumpur.
‐ Trimming of SYD, MEL and PER will result rise of AAX’s load factor and yield.
‐ The shift of the supply-demand dynamics will positively impact AAX turnaround initiatives as Australian routes contribute approx. 36% of AAX’s total revenue in FY2014.
‐ Potentially MAS will have frequency cuts for Taipei and many to come because the vast headcount cut.
MAS RESTRUCTURING – KEY PLANS - Downsizing: MAS to cutback at least 6,000 headcounts from the existing 20,000 - Network Rationalization & New Opportunity for AAX: MAS to reduce aircraft size, frequency, and pull back on
certain long haul routes - Re-entry Opportunity for AAX’s London: MAS is selling its 2 A380s which are currently serving London route - Price Correction: MAS to addresses the irrationally low fares that was offered beyond breakeven level, and to
introduce attractive fares
axe Brisbane &
trims SYD,MEL,PER
Rationalize Capacity & Pricing
Lift Base Fare & Load Factor = Higher Yield
No More Head-On Competition
MAS CUTTING MORE THAN 30% AUSTRALIA CAPACITY
= BIG POSITIVE TO AAX’S AUSTRALIA SEGMENT
HUGE UPSIDE:
MAS RESTRUCTURING
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Route/ Avg. Weekly Frequency
OVER-CAPACITY CAPACITY RATIONALIZATION
AAX (4Q13 - 3Q14)
MAS (4Q13-2Q15)
AAX (4Q14 – 2Q15)
MAS (3Q15 onwards)
Brisbane - 7x - Terminated
Gold Coast 7x - 5x -
Sydney 14x 21x 7x 14x
Melbourne 14x 21x 11x 14x
Perth 14x 12x 11x 7x
Adelaide 5x 7x Terminated 4x
TOTAL 54x 68x 34x 39x
RATIONALIZING CAPACITY FOR KUALA LUMPUR - AUSTRALIA
AAX reduced a total of 20x weekly flights since 4Q14 while MAS is reducing 29x weekly flights from August 2015 onwards, representing a total cut of 49x weekly flights from Kuala Lumpur to Australia.
HUGE UPSIDE:
MAS RESTRUCTURING
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4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15
RASK -24% -30% -23% -12% 22% 7% 17%
ASK 50% 76% 77% 28% -6% -21% -36%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
AAX’S AUSTRALIA YIELD HAS STARTED TO RECOVER AFTER AAX
REDUCES AUSTRALIA CAPACITY FROM 4Q14 ONWARDS.
MAS CAPACITY CUT FURTHERS IMPROVE AAX’S YIELD AS PRICING
SHOULD RATIONALIZE FOLLOWING TIGHTER CAPACITY IN THE
MARKET.
Year
-on
-Yea
r G
row
th
Australia RASK
Turnaround
HUGE UPSIDE:
MAS RESTRUCTURING
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FOR EVERY RM0.10 MOVEMENT IN USD:MYR WILL RESULTS IN
SAVING/EXPENSE OF APPROX. RM50MIL PER ANNUM.
TO REDUCE THE IMPACT FROM WEAKENING MYR, AAX WILL
INTENSIFY SALES FROM STRONGER MARKET SUCH AS AUD AND
OTHER CURRENCIES.
CURRENCY IMPACT
13
MYR 32%
*USD 40%
AUD 20%
Other 4% CNY 2%
JPY 1% KRW 1%
REVENUE BREAKDOWN BY CURRENCY AS AT 30TH JUNE 2015
*Includes (i) collections from CNY, TWD, NPR and LKR as the currencies are swapped to USD by payment channel options, (ii) wet leases, (iii) cargo, and (iv) aircraft operating lease income
BUSINESS UPDATE
FORWARD BOOKINGS – 2H2015
15%
Ahead 13%
Ahead
4%
Ahead
7%
Ahead 7%
Ahead 1%
Behind
As at 17 August 2015
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LOAD FACTOR (%)
AVERAGE BASE FARE (RM)
FLY-THRU PERFORMANCE
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FLY-THRU & SELF-CONNECTING REMAIN POSITIVE DESPITE
NETWORK CONSOLIDATION
70% OF AAX FLY-THRU PASSENGERS TAPPED INTO AIRASIA’S
NETWORK AND IS GROWING STRONG
5 YEARS AIRCRAFT DELIVERIES Updated as at 18th August 2015; Fleet plan is subject to change
*To Sell 2 (TBC)
*To Defer 2
*2 A330neo deliveries
*All A330neo deliveries
*
* * *
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Year Ended
2015 2016 2017 2018 2019 Initial Aircraft Deliveries (A330ceo) 8 4 5 3 0 Initial Aircraft Deliveries (A330neo) 0 0 0 2 5
Initial Aircraft Deliveries - TOTAL 8 4 5 5 5
Aircraft To Be Deferred (A330ceo) -2* +2* 0 0 0
Aircraft To Be Cancelled/ Outright Sale (A330ceo)
-2 -4 -5 -3 0
Latest Aircraft Deliveries - TOTAL 4** 2 0 2 5
*July and September 2015 aircraft will be deferred until March 2016. **Out of the 4 aircraft deliveries in 2015, we have taken 3 to-date and the balance of 1 (May aircraft) has been pushed-back to September 2015.
FUEL HEDGING
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AAX 2015 Q1 A Q2 A Q3 Q4 FY
Current Hedge
Ratio 56% 58% 57% 54% 56%
Avg Hedge Cost
(USD/bbl) 97.09 89.08 83.01 83.65 88.26
Updated as at 18th August 2015
ASSOCIATES UPDATE
2Q2015 KEY METRICS:
Total Pax Carried 227,927
Load Factor 72%
Average Base Fare (THB) 4,992
Net Loss (THB’mil) -100
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2Q14 traffic was mainly dragged by (i) MERS in Korea, and (ii) the weakest quarter of the year for North Asia. Current Routes: Bangkok to Incheon (7x weekly), Osaka (7x weekly), Narita (14x weekly). Suspended Route: Sapporo (due to unresolved safety issues with ICAO); Bangkok- Sapporo was operated
under MAAX call-sign until 30 July 2015. Upcoming Routes: China, Iran , Russia , Australia (TBC) Fleet Size: 4 A330s (as at 30th June 2015)
THAI AIRASIA X
INDONESIA AIRASIA X
Current Routes: Bali to Taipei (4x weekly), Melbourne (5x weekly) Recently Launched Route: Sydney (5x weekly) – inaugural flight: 17th Oct 2015 Upcoming Routes: Jeddah, Brisbane, Auckland, Tokyo, China (TBC) Fleet Size: 2 A330s (as at 30th June 2015) Expect to breakeven in 2016
2Q2015 KEY FINANCIAL &
OPERATIONAL
HIGHLIGHTS
*
2Q15 KEY FINANCIALS
Mainly dragged by lower: I. Scheduled Sales: -16%YoY due to absence of
marketing in 1Q15 and MERS in Korea; and II. Ancillary Revenue: -24%YoY on the back of
lower passengers carried.
REVENUE (RM)
-3% YoY
Attributed by: I. Australia: Recorded EBITDAR of RM9mil in
2Q15 as compared to LBITDAR of -RM50mil in 2Q14;
II. North Asia: Up +24%YoY; and III. Others*: Up +150%YoY.
*include Kathmandu, Jeddah, charters & wet leases
EBITDAR (RM)
+>100% YoY
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*
2Q15 KEY FINANCIALS
Mainly attributed by: I. Lower Fuel Cost: -44%YoY II. Depreciation: -22%YoY III. Other Operating Expenses*: -56%YoY
*office expenses, fees, inflight meals & merchandise, sales & marketing costs, insurance and etc.
The savings, however, were offset by higher: I. Aircraft Operating Lease Expenses, which
were RM118mil costlier or +172%YoY higher in 2Q15 compared to 2Q14, due to additional 8 aircraft on operating lease during the period; and
II. Maintenance, Overhaul & User Charges, which was +32%YoY, due to higher maintenance and service costs for the additional aircraft taken after 2Q14.
Operating Margin: 2Q15: -15% 2Q14: -17%
OPERATING (LOSS)/ PROFIT
(RM)
+14% YoY
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*
2Q15 KEY FINANCIALS
Mainly impacted by: I. Paper loss of -RM28mil on Forex in 2Q15 versus
a RM20mil gain in 2Q14 as MYR depreciated 13%YoY against USD, and
II. Investment Loss in JV, IAAX of -RM16mil in 2Q15 versus –RM13mil of investment loss for TAAX in 2Q14.
NET (LOSS)/ PROFIT
(RM)
-3% YoY
USD:MYR +13%YoY
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*
2Q15 KEY OPERATING STATS
Yield advancement was mainly lifted by: (i) Australia (+17%YoY) on the back of -36%YoY
capacity cut; and (ii) Others* (+21%YoY).
*include Kathmandu, Jeddah, charters & wet leases
RASK (RM)
+7% YoY
CASK up +5%YoY and Ex-fuel up +47%YoY mainly due to higher (i) aircraft rental and (ii) maintenance & overhaul costs which surged +199%YoY and +76%YoY respectively in CASK, on the back of increasing operating lease aircraft.
CASK (RM)
+5% YoY
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*
2Q15 KEY OPERATING STATS
AVERAGE BASE FARE (RM)
+7% YoY
ANCILLARY PER PAX (RM)
-6% YoY
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THANK YOU - End of Presentation -